PROBLEM 2 A. Loren is considering buying either a Muni bond or a Corporate bond. The Muni bond pays an interest rate of 5.

PROBLEM 2

A.  Loren is considering buying either a Muni bond or a Corporate bond. The Muni bond pays an interest rate of 5.00%. If Loren is in the 32% tax bracket, how much must the Corporate bond pay for Loren to be indifferent as to which to buys (round to 2 places; EX: 5.25%).

B.  Jordan is considering buying either a Muni bond paying 5.00% interest or a Corporate bond paying 8.00%. If Jordan is in the 35% tax bracket next year, which bond should she buy?

C.  At what tax rate would a taxpayer be indifferent to an exempt bond paying 5.20% interest and a taxable bond paying 8.25% interest?

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